Estimating risk efficiency in MiddleEast banks before and after the crisis.A Metafrontier framework.

Colesnic, Olga and Kounetas, Kostas and Polemis, Michael (2018): Estimating risk efficiency in MiddleEast banks before and after the crisis.A Metafrontier framework.

Abstract

The aim of this study is two-fold. Firstly, it attempts to analyse the effect of risk on Middle East bank's efficiency levels before and after the recent financial crisis. Secondly, it seeks to determine the influence of bank size taking into consideration the possible inefficiency originated to risk abatement cost. To examine the aforementioned issues we introduce a risk efficiency index based on an output orientated directional distance function with weak and strong disposability assumptions. The methodology has been applied on a panel data of Middle East banks spanning the period 1998-2014.The empirical findings suggest that on average small banks are more efficient and their size have less negative impact on their technical efficiency and risk management. On the other hand, large banks' risk management is found to be more flexible during financial crisis. Finally, banks with higher fixed assets are associated with more costly dispose of non performing loans justifying the rejection of a positive relation between bank size and technical efficiency.

• Item Type: MPRA Paper
• Language: English
• Keywords: Risk efficiency, Middle East banks, Directional distance function, Metatechnology
• Subjects: D - Microeconomics > D2 - Production and Organizations > D20 - General; D - Microeconomics > D2 - Production and Organizations > D24 - Production ; Cost ; Capital ; Capital, Total Factor, and Multifactor Productivity ; Capacity; G - Financial Economics > G1 - General Financial Markets; G - Financial Economics > G2 - Financial Institutions and Services; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages

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